Saturday, June 14, 2014

Ashbrook asks, if the market were the answer and not a carbon tax, then why aren't we seeing anything from the market? And that is the issue, we could have said the same thing about mail and parcel delivery before email and UPS, and who saw google, Wikipedia, and Netflix on the horizon? The hybrid cars, wind farms, and solar seem like obvious solutions that the government has poured lots of money into. But the market's solution will not be so blatant and obvious as a government tax or subsidy, and Ashbrook's question will never have an obvious answer. Modern hybrid corn with no subsidy or tax for instance has done more to combat climate change than hybrid cars in the US.

Often, this law is discussed in the context of property
rights, and rightly so:

“This local effort is
important because it’s a way for local growers to protect their property rights
from genetically engineered pollen contaminating their seed crops.”

-Ivan Maluski, Friends of Family Farmers

The assignment and protection of property rights is an
important role of government, and definitely serves a key function in dealing
with what economists refer to as negative externalities, and what most people
would think of when they think of nuisances or environmental pollution.However, the GMO bans represent a very
narrow and restrictive assignment of property rights.

Property Rights and
Externalities

Basically a negative externality occurs when a second party is harmed from an activity without their consent or compensation.
In the context of the Oregon law, we might view genetic contamination as a
negative externality.In these
cases, the principle of polluter pays is often the basis used to require polluters to either stop their activity, pay a fine, or
perhaps levy a tax related to the level of pollution.However, in 1960 economist Ronald Coase brought new insight
in his Journal of Law and Economics paper “The Problem of Social Cost.”Coase stated that in many cases, the
issue of pollution or negative externalities was in fact reciprocal.This can easily be understood in the context
of the Oregon case. While banning GMOs certainly protects organic and
conventional producers from the harms of cross-pollination it reciprocally
imposes significant harm on most family farmers by limiting their ability to
grow food in a way that is both profitable and sustainable.
The question becomes, who may
harm who?

Put another way, who should get the right to grow the kind
of crops they want? The answer is that the right should be assigned to the
party that values it the most. According to what has come to be known
as the Coase Theorem, the initial assignment of rights does not matter. With clearly
defined property rights, the optimal level of GMO vs. non-GMO crops planted as
well as optimal levels of cross-pollination can be determined through cooperative
processes.Of course in this case,
we may not be assigning physical rights to property so much as we are
assigning liability.

If liability
goes to the organic producers, and they want to restrict the planting of GMO
crops, then they have to find a way to compensate GMO growers to reduce
planting . If liability falls on GMO growers and the economic and environmental
benefits of growing GMO crops exceeds the value that organic producers place on uncontaminated
crops, then GMO growers can pay for damages (or buy insurance for such
purposes), or compensate organic producers for shifting their crops to another
location. They may also alter their GMO planting decisions in highly
susceptible areas.

The
assignment of property rights and the potential for bargaining results in
behavior that is changed or altered to account for the negative impact our
choices have on others, regardless of who holds the rights. This is the essence
of what is known as the ‘Coase Theorem and sets a standard of morality
and efficiency that the Oregon law falls tragically short of meeting and in
fact egregiously preempts.

Positive
Externalities

Positive externalities occur when one or more parties engage
in some activity and actually benefit another party without getting compensated
for it.An example of a positive
externality is the concept of herd immunity that can occur when most people
are vaccinated for things like measles.Government funding of vaccination programs is often justified on the
grounds of positive externalities. An unintended side effect of the Oregon law
banning GMOs is the elimination of positive externalities associated with the
planting of GMO crops. Research has shown that genetically modified crops have
improved the genetic diversity of beneficial pest populations and have provided external pest protection benefits to non-gmo crops worth billions of dollars
annually. In addition, biotechnology has contributed to significant reductions
in greenhouse gas emissions and reduced the use of toxic chemicals and
pesticides.The Oregon laws eliminate all of these positive externalities associated with GMO crops in
effect harming organic producers and all consumers.

Are these options practical or realistic? Nothing I could
put in print likely would be. Policy makers and economists are not in a
situation to know exactly all of the margins that individuals consider in their
decision making and the options available, which is another flaw in the Oregon laws which make this assumption.Some
assignment of property rights or liability that accommodates a cooperative space
for individuals to live their lives would be superior to both no law at all, or
one as draconian as the two counties in Oregon have adopted.

References:

The Problem of Social Cost. R. H. Coase. Journal of Law and
Economics, Vol. 3 (Oct., 1960), pp. 1-44

About Me

My primary interests are in applied econometrics with applications related to genomics, nutrition, health, and the environment. I have a quantitative and analytical background in the areas of applied economics and statistical genetics. I leverage my training with experience in machine learning and predictive modeling using SAS, R, and Python to solve problems. I can understand and produce peer reviewed research and discuss the application with a scientist, sales representative, or the customer whose problem ultimately drives the analysis. I can code my own estimators, execute SQL queries, parse text files, and visualize a social network.